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February 20, 2012

Banks, Storage Companies Expand Gold Vaults

Fueled by soaring demand, storage facilities add space

High demand for gold has already resulted in the building of new vaults or expansion of old ones as investors in a flight to safety have accumulated stores of the precious metal. While gold has yet to climb again to the heights it reached in 2011, it is still popular, particularly in Asia–and vaults are having to find more places to put it.

Bloomberg reported that Hong Kong-based Malca-Amit Global Ltd., which stores and transports diamonds and precious metals, will be opening a new vault in China later in the year and will also be expanding an existing facility in Singapore.

The new China vault will be located at the Beijing airport, according to Ofer Wilner, regional manager of the Far East unit, and will open by the end of the year. Meanwhile, expansion at the Singapore FreePort facility, currently consisting of two vaults that are 80% full, should be completed in six months and will add three more vaults at a cost of $2 million.

Other companies, from banks such as Deutsche Bank to secure storage facilities such as The Brink’s Co., have already jumped on the expansion bandwagon as demand for the metal continues. The World Gold Council reports that China may beat out India as the world’s largest gold market in 2012.

Wilner also said that Malca-Amit plans an additional facility in Bangkok, where it already has a presence. Earlier in February, a facility opened at Heathrow Airport in London that has capacity for over 300 metric tons of gold and 1,000 tons of silver.

Morgan Stanley predicts that gold’s price could continue to rise in 2012, averaging $1,845 this year–topping 2011’s average by 17%. Investment demand is also expected to rise 60% to 1,722 tons this year, according to a Feb. 13 report that adds that such demand accounts for only 39% of the total hunger for the precious metal. Bloomberg data also indicated that ETF gold holdings as of Feb. 16 were at a near record of 2,389.7 metric tons of gold.

While Deutsche Bank says it may expand existing facilities and build new ones, and Barclays Capital is in construction already on a London vault that may open this year, Wilner said in the report that “Not many banks are equipped to deal with physical metals. We are being approached now by more and more banks whose clients want to purchase physical gold.”